Equity Investment in Unconsolidated Subsidiary

9 Months Ended

Sep. 30, 2020

Equity Method Investments And Joint Ventures [Abstract]

Equity Investment in Unconsolidated Subsidiary

C. Equity Investment in Unconsolidated Subsidiary

The Company has invested $3.35 million in LGL Systems Acquisition Holding Company, LLC (a partially-owned subsidiary of LGL Group, Inc.), which serves as the sponsor (the “Sponsor”) of LGL Systems Acquisition Corp., a special purpose acquisition company, commonly referred to as a “SPAC”, or blank check company, formed for the purpose of effecting a business combination in the aerospace, defense and communications industries (the “SPAC”). The Company’s investment represents 62.2% of the Sponsor’s initial risk capital. The Sponsor is managed by LGL Systems Nevada Management Partners LLC (“Nevada GP”), an affiliated entity deemed to be under the significant influence of Marc Gabelli, the Company’s non-executive Chairman of the Board, who is also a greater than 10% stockholder of the Company. The Company has determined that it has significant influence in the Sponsor through Nevada GP but that it is not the primary beneficiary, therefore, accounts for the Sponsor under the equity method of accounting. The equity income (loss) is reported on the basis of a one-quarter lag and was the sole change in the equity investment during both the three and nine month periods ended September 30, 2020.

The Sponsor holds 20% of the shares in the SPAC along with 5,200,000 private warrants at a strike price of $11.50. On November 7, 2019, the SPAC raised $172.5 million through the sale of 17.25 million shares and was listed as a publicly traded company on the NASDAQ Capital Market under the ticker symbol ‘DFNS’. The SPAC’s initial public offering closed on November 12, 2019. Prior to and immediately following the initial public offering, the Sponsor held 4,312,500 shares of the SPAC, which are restricted and non-tradable.

If the SPAC does not complete a business combination within 24 months from the closing of the SPAC’s initial public offering, the proceeds from the sale of the private warrants will be used to fund the redemption of the shares sold in the SPAC’s initial public offering (subject to the requirements of applicable law), and the private warrants will expire worthless.